Looking to confuse compliance? Hold a moment while I change languages

Technology lags the rulebook as City firms struggle to monitor any telephone call not conducted in English

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By

Lucy McNulty

March 21, 2017 Updated: March 23, 2017 4:01 p.m. GMT

Pick up the phone to any City trader, and compliance will be listening. Speak anything other than English, and they may struggle to understand.

Under pressure from regulators to improve staff behaviour, financial institutions in the UK have been ramping up efforts over the last 18 months to better monitor telephone conversations.

City firms have turned to new technology to help them analyse staff phone calls, emails, instant messages and texts against trading data to alert them to patterns of behaviour which may set alarm bells ringing. But the systems currently available are no panacea - much of the tracking software for phone calls can currently understand only English.

Monitoring voice communication is central to the requirements of Europe’s new market abuse regulation, which came into effect in early 2016, and to revisions of the European trading rulebook, which are due to come into effect in the UK and Europe in 2018.

Under the second Markets in Financial Instruments Directive, in order to detect manipulative trading, firms must systematically record and monitor traders’ phone calls, emails, instant messages, texts, a wide range of executed transactions and every single quote produced by the bank or trading firm.

According to Graham Ure, a partner in the forensic technology team at professional services consultants PwC, the surveillance software that helps firms monitor the thousands of daily calls between City traders is still “evolving”. He said voice surveillance was particularly “difficult” to track.

He said the voice surveillance solutions available will change “markedly” over the next three years: “They’re all working on language packs, because they recognise that’s the bit to have in place.”

Valerie Bannert-Thurner, the global head of risk and surveillance business at stock exchange Nasdaq said: “The industry are all grappling with [monitoring] English [calls]. There’s so much noise… and the technology is still in many cases so unreliable that they’re not at the point of [monitoring less-common languages].”

Bill DiPietro, the vice president of product management at Nasdaq-backed communications surveillance firm Digital Reasoning said that tracking languages other than English was “an issue” for the industry.

Digital Reasoning is developing software that monitors English conversations in six dialects including Scottish, British English, American English and South African.

Alex Viall, the head of regulatory intelligence at behavioural analytics platform Behavox, said voice surveillance software providers had focused on perfecting their ability to monitor the English language because Anglo-Saxon regulators were “more advanced in terms of what they’re expecting from the market”.

Viall said the software Behavox uses to generate alerts from traders’ phone calls relied on a vocabulary of suspicious English keywords for now - for example, menu options from Nando's restaurant have been used by equity market traders to signal which stocks are in vogue - but the firm was in the process of expanding its capabilities to also provide alerts on European-language phone calls by later this year.

However, he said: “It doesn’t matter what languages you’re speaking, if someone’s tone suddenly drops to a whisper [our] system is going to pick that up.”

Brian White, the chief operating officer at regulatory surveillance firm RedOwl Analytics, said global investment banks were “fixated” with the need to track multiple languages. He said: “One of the things they’re concerned about is that people change their language to evade detection.”

According to White, RedOwl has worked in Portuguese, Spanish, French, Mandarin, and Japanese as well as English.

So concerned are some banks by their inability to accurately track foreign-language phone calls that their compliance teams have asked traders to communicate in English where possible.

According to a person familiar with the matter, the compliance professionals at UK lender Barclays began informally encouraging front office teams to speak in English a year ago in an effort to help the bank better monitor voice communications. A London-based surveillance specialist said that compliance teams at some US banks in the City have also urged the use of English-only telephone conversations in the past year.

Barclays declined to comment.

Technology consultancy Synechron has built an artificial intelligence system that uses voice recognition to help traders safeguard their firm from future fines by spotting when their clients are falling foul of regulation. Its creator Keonne Rodriguez said the system was in “proof of concept state” and was currently “only tracking [the] English language”. But he said when fully launched, it would have the capability to understand up 80 languages.

Comfort from context

While surveillance software is developing, PwC’s Ure said firms could take comfort from looking at data generated by their transaction monitoring systems and electronic communications surveillance software for signs of suspicious behaviour.

He said: “[If] they see something that might give them concern, or they want to do a deeper dive they can then pull out the voice transcripts [and analyse them manually with the help of linguists if needed].”

DiPietro at Digital Reasoning agreed. He said: “It’s more about understanding the context and the behaviour [than what the person is actually saying]… The hard part is really to identify those behaviours, the communications and trading patterns. It’s those kind of things you look for and then you dive into the details.”

A spokewoman for the Financial Conduct Authority, the UK’s top financial regulator, said: "[Our] expectation is that surveillance is proportionate and appropriate to the firm in question and [that] some firms [will] do audio surveillance in languages beyond English."